University of the Philippines vs.

Walfrido De Los Angeles

Republic of the Philippines
SUPREME COURT
Manila
EN BANC

G.R. No. L-28602 September 29, 1970

UNIVERSITY
OF
THE
PHILIPPINES, petitioner,
vs.
WALFRIDO DE LOS ANGELES, in his capacity as JUDGE of the COURT OF FIRST INSTANCE
IN QUEZON CITY, et al., respondents.
Office of the Solicitor General Antonio P. Barredo, Solicitor Augusto M. Amores and Special Counsel
Perfecto V. Fernandez for petitioner.
Norberto J. Quisumbing for private respondents.

REYES, J.B.L., J.:

Three (3) orders of the Court of First Instance of Rizal (Quezon City), issued in its Civil Case No.
9435, are sought to be annulled in this petition for certiorari and prohibition, filed by herein petitioner
University of the Philippines (or UP) against the above-named respondent judge and the Associated
Lumber Manufacturing Company, Inc. (or ALUMCO). The first order, dated 25 February 1966,
enjoined UP from awarding logging rights over its timber concession (or Land Grant), situated at the
Lubayat areas in the provinces of Laguna and Quezon; the second order, dated 14 January 1967,
adjudged UP in contempt of court, and directed Sta. Clara Lumber Company, Inc. to refrain from
exercising logging rights or conducting logging operations on the concession; and the third order,
dated 12 December 1967, denied reconsideration of the order of contempt.
As prayed for in the petition, a writ of preliminary injunction against the enforcement or
implementation of the three (3) questioned orders was issued by this Court, per its resolution on 9
February 1968.
The petition alleged the following:
That the above-mentioned Land Grant was segregated from the public domain and given as an
endowment to UP, an institution of higher learning, to be operated and developed for the purpose of
raising additional income for its support, pursuant to Act 3608;
That on or about 2 November 1960, UP and ALUMCO entered into a logging agreement under which
the latter was granted exclusive authority, for a period starting from the date of the agreement to 31
December 1965, extendible for a further period of five (5) years by mutual agreement, to cut, collect
and remove timber from the Land Grant, in consideration of payment to UP of royalties, forest fees,
etc.; that ALUMCO cut and removed timber therefrom but, as of 8 December 1964, it had incurred an
unpaid account of P219,362.94, which, despite repeated demands, it had failed to pay; that after it
had received notice that UP would rescind or terminate the logging agreement, ALUMCO executed
an instrument, entitled "Acknowledgment of Debt and Proposed Manner of Payments," dated 9
December 1964, which was approved by the president of UP, and which stipulated the following:
3. In the event that the payments called for in Nos. 1 and 2 of this paragraph are not
sufficient to liquidate the foregoing indebtedness of the DEBTOR in favor of the
CREDITOR, the balance outstanding after the said payments have been applied shall
be paid by the DEBTOR in full no later than June 30, 1965;
xxx xxx xxx

5. In the event that the DEBTOR fails to comply with any of its promises or undertakings
in this document, the DEBTOR agrees without reservation that the CREDITOR shall
have the right and the power to consider the Logging Agreement dated December 2,
1960 as rescinded without the necessity of any judicial suit, and the CREDITOR shall
be entitled as a matter of right to Fifty Thousand Pesos (P50,000.00) by way of and for
liquidated damages;
ALUMCO continued its logging operations, but again incurred an unpaid account, for the period from
9 December 1964 to 15 July 1965, in the amount of P61,133.74, in addition to the indebtedness that it
had previously acknowledged.
That on 19 July 1965, petitioner UP informed respondent ALUMCO that it had, as of that date,
considered as rescinded and of no further legal effect the logging agreement that they had entered in
1960; and on 7 September 1965, UP filed a complaint against ALUMCO, which was docketed as Civil
Case No. 9435 of the Court of First Instance of Rizal (Quezon City), for the collection or payment of
the herein before stated sums of money and alleging the facts hereinbefore specified, together with
other allegations; it prayed for and obtained an order, dated 30 September 1965, for preliminary
attachment and preliminary injunction restraining ALUMCO from continuing its logging operations in
the Land Grant.
That before the issuance of the aforesaid preliminary injunction UP had taken steps to have another
concessionaire take over the logging operation, by advertising an invitation to bid; that bidding was
conducted, and the concession was awarded to Sta. Clara Lumber Company, Inc.; the logging
contract was signed on 16 February 1966.
That, meantime, ALUMCO had filed several motions to discharge the writs of attachment and
preliminary injunction but were denied by the court;
That on 12 November 1965, ALUMCO filed a petition to enjoin petitioner University from conducting
the bidding; on 27 November 1965, it filed a second petition for preliminary injunction; and, on 25
February 1966, respondent judge issued the first of the questioned orders, enjoining UP from
awarding logging rights over the concession to any other party.
That UP received the order of 25 February 1966 after it had concluded its contract with Sta. Clara
Lumber Company, Inc., and said company had started logging operations.
That, on motion dated 12 April 1966 by ALUMCO and one Jose Rico, the court, in an order dated 14
January 1967, declared petitioner UP in contempt of court and, in the same order, directed Sta. Clara
Lumber Company, Inc., to refrain from exercising logging rights or conducting logging operations in
the concession.
The UP moved for reconsideration of the aforesaid order, but the motion was denied on 12 December
1967.
Except that it denied knowledge of the purpose of the Land Grant, which purpose, anyway, is
embodied in Act 3608 and, therefore, conclusively known, respondent ALUMCO did not deny the
foregoing allegations in the petition. In its answer, respondent corrected itself by stating that the
period of the logging agreement is five (5) years - not seven (7) years, as it had alleged in its second
amended answer to the complaint in Civil Case No. 9435. It reiterated, however, its defenses in the
court below, which maybe boiled down to: blaming its former general manager, Cesar Guy, in not
turning over management of ALUMCO, thereby rendering it unable to pay the sum of P219,382.94;
that it failed to pursue the manner of payments, as stipulated in the "Acknowledgment of Debt and
Proposed Manner of Payments" because the logs that it had cut turned out to be rotten and could not
be sold to Sta. Clara Lumber Company, Inc., under its contract "to buy and sell" with said firm, and
which contract was referred and annexed to the "Acknowledgment of Debt and Proposed Manner of
Payments"; that UP's unilateral rescission of the logging contract, without a court order, was invalid;
that petitioner's supervisor refused to allow respondent to cut new logs unless the logs previously cut
during the management of Cesar Guy be first sold; that respondent was permitted to cut logs in the
middle of June 1965 but petitioner's supervisor stopped all logging operations on 15 July 1965; that it
had made several offers to petitioner for respondent to resume logging operations but respondent
received no reply.

The basic issue in this case is whether petitioner U.P. can treat its contract with ALUMCO rescinded,
and may disregard the same before any judicial pronouncement to that effect. Respondent ALUMCO
contended, and the lower court, in issuing the injunction order of 25 February 1966, apparently
sustained it (although the order expresses no specific findings in this regard), that it is only after a
final court decree declaring the contract rescinded for violation of its terms that U.P. could disregard
ALUMCO's rights under the contract and treat the agreement as breached and of no force or effect.
We find that position untenable.
In the first place, UP and ALUMCO had expressly stipulated in the "Acknowledgment of Debt and
Proposed Manner of Payments" that, upon default by the debtor ALUMCO, the creditor (UP) has "the
right and the power to consider, the Logging Agreement dated 2 December 1960 as rescinded without
the necessity of any judicial suit." As to such special stipulation, and in connection with Article 1191 of
the Civil Code, this Court stated in Froilan vs. Pan Oriental Shipping Co., et al., L-11897, 31 October
1964, 12 SCRA 276:
there is nothing in the law that prohibits the parties from entering into agreement that
violation of the terms of the contract would cause cancellation thereof, even without
court intervention. In other words, it is not always necessary for the injured party to
resort to court for rescission of the contract.
Of course, it must be understood that the act of party in treating a contract as cancelled or resolved
on account of infractions by the other contracting party must be made known to the other and is
always provisional, being ever subject to scrutiny and review by the proper court. If the other party
denies that rescission is justified, it is free to resort to judicial action in its own behalf, and bring the
matter to court. Then, should the court, after due hearing, decide that the resolution of the contract
was not warranted, the responsible party will be sentenced to damages; in the contrary case, the
resolution will be affirmed, and the consequent indemnity awarded to the party prejudiced.
In other words, the party who deems the contract violated may consider it resolved or rescinded, and
act accordingly, without previous court action, but it proceeds at its own risk. For it is only the final
judgment of the corresponding court that will conclusively and finally settle whether the action taken
was or was not correct in law. But the law definitely does not require that the contracting party who
believes itself injured must first file suit and wait for a judgment before taking extrajudicial steps to
protect its interest. Otherwise, the party injured by the other's breach will have to passively sit and
watch its damages accumulate during the pendency of the suit until the final judgment of rescission is
rendered when the law itself requires that he should exercise due diligence to minimize its own
damages (Civil Code, Article 2203).
We see no conflict between this ruling and the previous jurisprudence of this Court invoked by
respondent declaring that judicial action is necessary for the resolution of a reciprocal
obligation, 1 since in every case where the extrajudicial resolution is contested only the final award of
the court of competent jurisdiction can conclusively settle whether the resolution was proper or not. It
is in this sense that judicial action will be necessary, as without it, the extrajudicial resolution will
remain contestable and subject to judicial invalidation, unless attack thereon should become barred
by acquiescence, estoppel or prescription.
Fears have been expressed that a stipulation providing for a unilateral rescission in case of breach of
contract may render nugatory the general rule requiring judicial action (v. Footnote, Padilla, Civil Law,
Civil Code Anno., 1967 ed. Vol. IV, page 140) but, as already observed, in case of abuse or error by
the rescinder the other party is not barred from questioning in court such abuse or error, the practical
effect of the stipulation being merely to transfer to the defaulter the initiative of instituting suit, instead
of the rescinder.
In fact, even without express provision conferring the power of cancellation upon one contracting
party, the Supreme Court of Spain, in construing the effect of Article 1124 of the Spanish Civil Code
(of which Article 1191 of our own Civil; Code is practically a reproduction), has repeatedly held that, a
resolution of reciprocal or synallagmatic contracts may be made extrajudicially unless successfully
impugned in court.
El articulo 1124 del Codigo Civil establece la facultad de resolver las obligaciones
reciprocas para el caso de que uno de los obligados no cumpliese lo que le
incumbe, facultad
que,
segun
jurisprudencia
de
este
Tribunal,
surge

immediatamentedespuesque la otra parte incumplio su deber, sin necesidad de una

declaracion previa de los Tribunales. (Sent. of the Tr. Sup. of Spain, of 10 April 1929;
106 Jur. Civ. 897).
Segun reiterada doctrina de esta Sala, el Art. 1124 regula la resolucioncomo una
"facultad" atribuida a la parte perjudicada por el incumplimiento del contrato, la cual
tiene derecho do opcion entre exigir el cumplimientoo la resolucion de lo
convenido, que puede ejercitarse, ya en la via judicial, ya fuera de ella, por declaracion
del acreedor, a reserva, claro es, que si la declaracion de resolucion hecha por una de
las partes se impugna por la otra, queda aquella sometida el examen y sancion de los
Tribunale, que habran de declarar, en definitiva, bien hecha la resolucion o por el
contrario, no ajustada a Derecho. (Sent. TS of Spain, 16 November 1956; Jurisp.
Aranzadi, 3, 447).
La resolucion de los contratos sinalagmaticos, fundada en el incumplimiento por una de
las partes de su respectiva prestacion, puedetener lugar con eficacia" 1. o Por la
declaracion de voluntad de la otra hecha extraprocesalmente, si no es impugnada en
juicio luego con exito. y 2. 0 Por la demanda de la perjudicada, cuando no opta por el
cumplimientocon la indemnizacion de danos y perjuicios realmente causados, siempre
quese acredite, ademas, una actitud o conducta persistente y rebelde de laadversa o la
satisfaccion de lo pactado, a un hecho obstativo que de un modoabsoluto, definitivo o
irreformable lo impida, segun el art. 1.124, interpretado por la jurisprudencia de esta
Sala, contenida en las Ss. de 12 mayo 1955 y 16 Nov. 1956, entre otras, inspiradas por
el principio del Derecho intermedio, recogido del Canonico, por el cual fragenti fidem,
fides non est servanda. (Ss. de 4 Nov. 1958 y 22 Jun. 1959.) (Emphasis supplied).
In the light of the foregoing principles, and considering that the complaint of petitioner University
made out a prima facie case of breach of contract and defaults in payment by respondent ALUMCO,
to the extent that the court below issued a writ of preliminary injunction stopping ALUMCO's logging
operations, and repeatedly denied its motions to lift the injunction; that it is not denied that the
respondent company had profited from its operations previous to the agreement of 5 December 1964
("Acknowledgment of Debt and Proposed Manner of Payment"); that the excuses offered in the
second amended answer, such as the misconduct of its former manager Cesar Guy, and the rotten
condition of the logs in private respondent's pond, which said respondent was in a better position to
know when it executed the acknowledgment of indebtedness, do not constitute on their face sufficient
excuse for non-payment; and considering that whatever prejudice may be suffered by respondent
ALUMCO is susceptibility of compensation in damages, it becomes plain that the acts of the court a
quo in enjoining petitioner's measures to protect its interest without first receiving evidence on the
issues tendered by the parties, and in subsequently refusing to dissolve the injunction, were in grave
abuse of discretion, correctible by certiorari, since appeal was not available or adequate. Such
injunction, therefore, must be set aside.
For the reason that the order finding the petitioner UP in contempt of court has open appealed to the
Court of Appeals, and the case is pending therein, this Court abstains from making any
pronouncement thereon.
WHEREFORE, the writ of certiorari applied for is granted, and the order of the respondent court of 25
February 1966, granting the Associated Lumber Company's petition for injunction, is hereby set
aside. Let the records be remanded for further proceedings conformably to this opinion.
Dizon, Makalintal, Zaldivar, Castro, Fernando, Teehankee, Barredo, Villamor and Makasiar, JJ.,
concur.
Reyes, J.B.L., Actg. C.J., is on leave.

# Footnotes
1 Ocejo Perez & Co. vs. International Banking Corp., 37 Phil. 631; Republic vs. Hospital de San Juan
de Dios, et al., 84 Phil. 820.